AT&T will pay $65 million to Missouri cities to settle tax class action

AT&T Inc. agreed on Friday to pay $65 million (USD) to 330 Missouri municipalities, including about $17 million to 10 cities in the Kansas City area, to settle a 2004 class-action lawsuit about taxes on landlines.

AT&T argued, unsuccessfully, that the cities’ ordinances didn’t include certain items such as access, a charge that AT&T imposes on interstate and intrastate long-distance companies to originate or complete phone calls, as well as a flat-rate charge designed to recover a portion of AT&T’s cost of providing the local telephone loop to transport customers’ long-distance calls.

Howard Paperner, an attorney for the municipalities, said that Friday’s preliminary settlement is separate from any other class-action suits that Missouri municipalities filed against wireless telephone providers in 2000. Those cases were largely settled in 2007, and leading wireless carriers paid about $200 million (USD) in 2008 to Missouri municipalities as part of those settlements.

This is not the first time AT&T has paid fines for illegal business practices. In February, a unit of AT&T agreed to pay nearly $8.3 million to settle federal allegations that it relied on non-competitive bidding practices for the E-Rate program that provides funding for needy schools and libraries to use the Internet.

The E-Rate program was created as a provision of the 1966 Telecommunications Act which specified that individual telecommunications carriers must provide service to schools and libraries at "affordable" rates. The amount of the associated discount is to be reimbursed by the universal service system that is required as part of the 1996 Act.

In the past, many companies have been caught in criminal investigations linked to E-Rate. In May 2004, a subsidiary of NEC pleaded guilty to fraud charges and the company paid $20.7 million to settle the charges. The largest scandal involving E-Rate erupted in 2000 after officials discovered that Victor Fajardo-Velez, the former secretary of education for Puerto Rico which falls under US law had mismanaged nearly $100 million in E-Rate subsidies. Fajardo-Velez was eventually sentenced to three years in prison and fined $4 million for irregularities associated with the use of US Education Department funds.

We called AT&T’s press person regarding last week’s $65 million fine. They have not returned our call as of publication.